HDFC Bank Ltd. expects its net interest margin to improve from the December quarter as the repricing of floating-rate loans begins to offset the impact of FCNR(B) funding costs.
“The trajectory will be upward from the next quarter onwards,” the country's largest private lender said during its second-quarter earnings call on Saturday. Chief Financial Officer Srinivasan Vaidyanathan said the bank's margins had reached the bottom but did not provide a specific estimate for the improvement.
The outlook follows a decline in HDFC Bank's net interest margin over recent quarters. The margin fell to 3.16% of total assets in the September quarter from 3.3% in the June quarter and 3.4% a year earlier. Net interest income, or the difference between interest earned and interest expended, rose 9.7% year-on-year to Rs 34,619 crore.
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Repricing Benefit
About 70% of HDFC Bank's loan book carries floating interest rates, Vaidyanathan said. The 25-basis-point rate increase in October should largely feed into loan pricing by December, although the benefit will apply for only part of the quarter.
“That is a good tailwind on repricing 70% of the loans which are floating,” Vaidyanathan said. He added that the repo rate links most of the bank's floating-rate loans.
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The benefit will be partly offset by the full-quarter impact of FCNR(B) funding costs in the December quarter. Vaidyanathan said the net effect on margins could be neutral to positive as the repricing benefit comes through.
“After considering that, we still believe that margins can be neutral to positive as we move forward,” he said.
The CFO did not quantify the expected change in margins for the December quarter or subsequent periods.
Q2 Highlights
HDFC Bank's standalone net profit rose 4.7% year on year to Rs 19,510 crore in the September quarter. Profit after tax excluding treasury trading gains rose 12.6% to Rs 18,930 crore, according to the bank's earnings presentation.
Treasury trading gains fell to Rs 780 crore from Rs 2,390 crore a year earlier. Provisions and contingencies increased to Rs 3,570 crore from Rs 3,500 crore in the year-earlier quarter.
The December-quarter results will show how much of the benefit from loan repricing reaches margins after accounting for FCNR(B) funding costs.
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